With the beginning of a new year investors are flooded with predictions and outlooks from every “expert” and market observer. It can be as confusing as navigating a busy foreign subway system when you don’t speak the language. “Uhhh… which way do I go?” Let’s not try to guess which stocks, sectors, etc are going to lead the year – I believe we are in store for an even more volatile year in 2015 than we saw the past two years. Look for more conflicting data and opinions which can lead to polarizing opinions by analysts and confusion by advisors and clients alike. I think you will see market pundits and investors swing from strong optimism to strong pessimism (euphoria and panic) with regard to the markets – like we’re seeing with oil related companies the past few months.
This is not a time to be investing without a plan or a strategy.
I firmly believe that, for most investors, this is not a time to try and actively trade this volatility. Having begun my experience with investing at a young age in the early 1980’s with my first $50 into shares of United Telephone and being an investment advisor for the past 25 years I’ve learned that overtrading can lead to huge losses if you make even one mistake. So here are a few of the steps in my plan of attack for weathering the possible onslaught of swings in the markets that I expect (everyone has their own specific situation, and these ideas may not be appropriate for all investors, but they should provide you with some perspective):
- Use fear to your advantage – For monies that you want to have exposed to equities or highly-correlated equity investments try to target the investments you want to own and buy them on weakness. Although past performance does not guarantee future results, it is sometimes the case that when the markets experience a significant sell off or, even better for the buyer, when investors panic (i.e. August 1998, November 2008, and March 2009) many equity and equity correlated investments drop together – “the baby out with the bath water”. It is often the case that high quality investments drop right along with low quality investments and during a panic you can find high quality investments that did nothing wrong other than be guilty by association with the markets.
- Ignore the crowd – Emotions are the biggest obstacle I know to investing. In fact involving emotions with investing is like drinking and driving, a terrible mix. I do not listen to the media to direct investment decisions, and I advise you to do the same. By the time the media is reporting news it’s likely to have been factored into the markets and adds to the listener’s emotions.
- Know your goal – I believe if you know what you own and why you own it, you can effectively manage any investment in your portfolio regardless of the market. When looking at a company did the drop in the market prices change the quality of the product/service, did it decrease its position vs. their competitors, did it change their balance sheet, did it change the marketplace for their product/service? Let me use a personal example. I saw a suit in a store that I really wanted, but I thought it was little pricey and knew there was a going to be a President’s Day sale, so I was going to come back and see if I could get it cheaper then. It turns out the company who owned the store didn’t manage its business so well and while I was awaiting President’s Day to roll around this company announced several store closings in my area. One of the stores that was closing had my suit marked down 40% for their store closing sale weeks before President’s Day. I examined the suit; it was my size, no damage to it, exactly as I wanted, only 40% cheaper. Did the suit change, no, but the situation around it did and I took advantage of it. This is how I currently see many opportunities in natural resources today – I know I want to own them for the long term so I am waiting for what I believe are “sales.” In fact, I believe we may well see several “sales” in the overall markets during the next 12 months.
In summary, it is my opinion that the markets could have wider and more frequent swings than what we’ve had the past two years. Do not simply avoid the markets out of fear. Having a plan/strategy in place is not only important, it can help you navigate volatility and sleep more comfortably amidst the seeming chaos.
Please visit www.GharibGroup.com to contact Clint Gharib as well as to read additional commentary . JPT010815-046